Will the world economy enter a new recession next year?

The US Federal Reserve bank is planning to raise its basic interest rate at its 15 December monetary policy meeting. This will be the first Fed hike since 2006. That fact alone shows how long and how deep has been the impact of the global financial crash of 2007-2008, the subsequent Great Recession of 2008-9 and the ensuing and seemingly unending long depression of below trend economic growth since.

For six years, the Fed has held its interest rate near zero to ‘save the banks’ from meltdown, to avoid debt depression like the 1930s and to revive the economy with cheap credit.

Ben Bernanke, the Fed chief at the time, continues to argue that this easy and ‘unconventional’ monetary policy did that trick. Bernanke has recently published a book defending his strategy and does interviews for the same.

Apparently, a majority of Fed monetary policy makers reckon that, at last, the US economy is growing fast enough to ‘tighten’ labour markets and even raise the possibility of rising inflation perhaps eventually beyond the 2% target that Fed looks to. But that conclusion is debatable at the very least.

It’s true that the unemployment rate has halved to 5% from its peak of 10% at the depth of the Great Recession, but it is still above the pre-crash lows. And inflation remains well below the Fed target. Headline inflation which includes energy and food prices is near zero, and even excluding these items, ‘core’ inflation, although rising is still below the Fed target at 1.9%. And if you look at the prices that average Americans pay for the goods and services they use, based on the personal consumption expenditure (PCE) index, then inflation is very low.

Moreover, real GDP growth remains pretty pathetic at around 2.2% a year on average, well below the average of 3.3% a year before the global financial crash. The ‘trend gap’ shows no sign of being bridged. Indeed, what is happening is that the official economic bodies are lowering their estimates to potential GDP growth towards the actual level of growth so that the ‘output gap’ disappears.

In other words, it is being admitted that the US economy is now set on a permanent path of lower long-term growth, based a low growth in population (despite one million net immigrants a year) and very low productivity growth (as business investment growth slows).

The damage to the US economy from the Great Recession has left a permanent scar; what is called ‘hysteresis’. In a new study, Professor Laurence Ball of Johns Hopkins University (http://www.nber.org/papers/w20185), from a sample of 23 high-income countries, concludes that losses of potential output as a result of the Great Recession ranged from zero in Switzerland to more than 30 per cent in Greece, Hungary and Ireland. In aggregate, he concludes, potential output this year was thought to be 8.4 per cent below what its pre-crisis path would have predicted. This damage from the Great Recession is, he notes, much the same as if Germany’s economy had disappeared. This measures the permanent loss of resources and value caused by capitalist slumps.

Indeed, work by Keynesian economists Larry Summers, Olivier Blanchard (ex-IMF chief economist) and Eugenio Cerrutti found that a high proportion of recessions, or about two-thirds, are followed by lower output relative to the pre-recession trend even after the economy has recovered. In about one-half of those cases, the recession is followed not just by lower output, but by lower output growth relative to the pre-recession output trend. That is, as time passes following recessions, the gap between output and projected output on the basis of the prerecession trend increases. They suggest important hysteresis effects and even “superhysteresis” effects (the term used by Laurence Ball for the impact of a recession on the growth rate rather than just the level of output).

The first two theories in some way suggest that the Fed should not hike rates in case they take the cost of borrowing either above the ‘natural rate’ or burst the credit bubble and push the economy into a deeper liquidity trap. The Marxist view is that, just as zero interest rates and quantitative easing made little difference in restoring a low profitability, high debt economy, so raising rates will solve nothing either.

The Keynesian answer (at least among those Keynesians like Krugman, Summers, DeLong and Wren-Lewis) is: keep going with the easy money policy but add to it a round of government spending, financed by government borrowing. You see, the main cause of the Great Recession was ‘lack of demand’ and the main cause of the subsequent weak recovery or depression was the application of ‘austerity’ (i.e. cuts in government spending in trying to balance the books as though an economy was like household finances). Rising debt does not matter because one person’s debt is another’s asset.

Well, there are a number of questions there. First, did governments in the major economies apply austerity? Well, some did and some did not too fiercely despite the neo-classical rhetoric of many finance ministers. Second, did more or less austerity correlate with slower or faster growth? The Keynesians say it did. They proclaim the power of the Keynesian multiplier, namely that one unit of extra government spending over taxes will deliver a multiple of one unit of real GDP, especially in times of slump. They usually cite a ratio of 1.5 times.

The evidence for this is weak and a matter of intense debate, although only this week, Paul Krugman made another attempt to prove that austerity was the cause of global weakness. I did a correlation between fiscal deficit expansion by various governments against an increase in real GDP and found little correlation, especially if Greece is removed.

And in the latest study of the impact of austerity on growth, Alberto Alesina and Francesco Giavassi found that “fiscal adjustments based upon cuts in spending are much less costly, in terms of output losses, than those based upon tax increases. ….spending-based adjustments generate very small recessions, with an impact on output growth not significantly different from zero.” And “Our findings seem to hold for fiscal adjustments both before and after the financial crisis. We cannot reject the hypothesis that the effects of the fiscal adjustments, especially in Europe in 2009-13, were indistinguishable from previous ones”. In other words, cutting government spending (austerity) had little effect on the real GDP growth rate and that applied to the post-crisis ‘austerity policies of European governments.

G Carchedi and I have considered the mechanism of government tax and spending policies on economic growth from the Marxist viewpoint. We started from the premiss that economic growth in capitalist economies depends on an expansion of business investment and that depends ultimately on the profitability of those investments. So we looked at the multiplier effects of government spending, taxation and borrowing on growth through the prism of profitability – a Marxist multiplier, we called it.

Our Marxist multiplier analysis revealed that it was very unlikely that extra government spending, whether financed by taxes or borrowing, would boost profitability in the business sector and therefore raise capitalist investment and economic growth.

I have tested our premiss that it is the profitability of business capital that matters not government spending. I found that there was a significant positive correlation between changes in profitability of capital and economic growth, unlike the lack of correlation between more government spending and growth, as the Keynesians claim, at least in a slump.

That again tells me that if we want to know what is going to happen in the major capitalist economies we must look at the key indicators of business investment and the profitability of capital, not at inflation, employment or the level of ‘austerity’ as mainstream economists do.

So what are the prospects for global capitalism on those Marxist criteria and what is the likelihood of a new slump as the Fed prepares to hike? I have discussed these questions ad nauseam on this blog in the past. But let us consider the latest evidence.

At the recent meeting of the G20 in Turkey, apart from discussing the mess in the Middle East and the migration crisis in Europe, the ministers reaffirmed their pledge or expectation that the major economies will grow by an extra 2% by 2018. What an ‘additional’ 2% of G20 GDP means is difficult to judge. But anyway it is really a sick joke.

Far from accelerating, global growth is slowing down further. In its twice-yearly outlook, the Organisation for Economic Cooperation and Development (OECD) cut its forecast for global economic growth to 2.9% in 2015 and 3.3% in 2016, down from 3.0% and 3.6%, respectively.

Presenting the outlook in Paris, OECD secretary general Angel Gurría said: “The slowdown in global trade and the continuing weakness in investment are deeply concerning. Robust trade and investment and stronger global growth should go hand in hand.” Catherine Mann, OECD chief economist said: “Global trade, which was already growing relatively slowly over the past few years, appears to have stagnated and even declined since late 2014. This is deeply concerning. Robust trade and global growth go hand in hand….“The growth rates of global trade observed so far in 2015 have, in the past, been associated with global recession.”

We also have the preliminary real GDP figures for the most important capitalist economy in the world, the US. In third quarter of 2015 (June to September) US economic expansion slowed sharply. The economy grew at a 1.5 per cent pace annualised pace in the three months to September, down from 3.9 per cent in the second quarter. The US economy has expanded in real terms over the last 12 months by just 2%, down from 2.7% in Q2 and business investment slowed to its lowest yoy rate for over two years; at an annual rate of 2.1% compared with 4.1% in Q2. And investment in new plant actually dropped 4% and investment in software and such rose at the slowest pace since 2013.

Meanwhile Japan’s economy contracted in the third quarter. Real GDP declined an annualized 0.8 percent, following a revised 0.7 drop in the second quarter. Again, the biggest worry was the weakness in business investment. This was the fifth ‘technical recession’ since Japanese PM Abe launched his ‘Abenomics’ and quantitative easing programmes. And in the Eurozone economic growth slowed to just 0.3% in Q3, from 0.4% in Q2.

And then we have the so-called emerging economies. I have reported on their demise in several previous posts. The policy of easy money and quantitative easing did not only lead to a stock and bond market boom in the major advanced economies, it also led to a similar boom in emerging economies as Asian, Latin American and ‘emerging’ European corporations borrowed heavily from cash-rich Western banks at cheap rates, mostly in dollars, to generate mainly a property and construction boom. Emerging market corporations now have debts near 100% of GDP on average, matching those for corporations in the advanced capitalist economies. But the commodity price boom upon which much of growth was based has collapsed. Global demand for oil and basic metals has slumped and this has spilt over into the demand for Asian exports. Export prices have slumped, currencies have dived and yet debts remain, mainly in dollars. And now the Fed is set to hike the cost of borrowing dollars.

The strategists of capital are not stupid. They have tried to estimate the likelihood of a new recession. Goldman Sachs pointed out that the current economic expansion — beginning in July 2009 — was now 76 months old. Using data since 1950, they calculate that the unconditional odds that a six-year-old expansion will avoid recession for another four years—and mature into a 10-year-old expansion—are about 60%. So the odds of recession over the next year are only 10-15%. And mainstream economic indicators for recessions using a range of economic variables suggest little likelihood of a slump in the US.

But this sort of indicator is pretty useless and it is backward looking, so recessions are on you before the data indicate them. And mainstream economics never forecast the Great Recession anyway. Indeed, we know that all the leading international economic agencies, the leading economists and investment gurus were predicting faster growth in 2007-8 as the global financial crash unfolded.

Moreover, in my view, modern capitalist cycles of slump to slump have not been just six years or less, but generally 8-10 years: 1974-5, 1980-2, 1990-2, 2001, 2008-9. If that were to hold again, then the next slump would not be due to start before next year at the earliest. And if the Fed’s rate hikes are to have an impact, they won’t be felt on the cost of debt and investment for at least six months.

26 Responses to “Will the world economy enter a new recession next year?”

Reblogged this on Reconstruction communiste Comité Québec and commented:
To sum up marxist Michael Roberts analysis, I took this extract. Scientific Discovery by Karl Marx’s law tendency of the rate of profit to fall is still the center of his interest :

«Presenting the outlook in Paris, OECD secretary general Angel Gurría said: “The slowdown in global trade and the continuing weakness in investment are deeply concerning. Robust trade and investment and stronger global growth should go hand in hand.” Catherine Mann, OECD chief economist said: “Global trade, which was already growing relatively slowly over the past few years, appears to have stagnated and even declined since late 2014. This is deeply concerning. Robust trade and global growth go hand in hand….“The growth rates of global trade observed so far in 2015 have, in the past, been associated with global recession.”

We also have the preliminary real GDP figures for the most important capitalist economy in the world, the US. In third quarter of 2015 (June to September) US economic expansion slowed sharply. The economy grew at a 1.5 per cent pace annualised pace in the three months to September, down from 3.9 per cent in the second quarter. The US economy has expanded in real terms over the last 12 months by just 2%, down from 2.7% in Q2 and business investment slowed to its lowest yoy rate for over two years; at an annual rate of 2.1% compared with 4.1% in Q2. And investment in new plant actually dropped 4% and investment in software and such rose at the slowest pace since 2013.

Meanwhile Japan’s economy contracted in the third quarter. Real GDP declined an annualized 0.8 percent, following a revised 0.7 drop in the second quarter. Again, the biggest worry was the weakness in business investment. This was the fifth ‘technical recession’ since Japanese PM Abe launched his ‘Abenomics’ and quantitative easing programmes. And in the Eurozone economic growth slowed to just 0.3% in Q3, from 0.4% in Q2.

And then we have the so-called emerging economies. I have reported on their demise in several previous posts. The policy of easy money and quantitative easing did not only lead to a stock and bond market boom in the major advanced economies, it also led to a similar boom in emerging economies as Asian, Latin American and ‘emerging’ European corporations borrowed heavily from cash-rich Western banks at cheap rates, mostly in dollars, to generate mainly a property and construction boom. Emerging market corporations now have debts near 100% of GDP on average, matching those for corporations in the advanced capitalist economies. But the commodity price boom upon which much of growth was based has collapsed. Global demand for oil and basic metals has slumped and this has spilt over into the demand for Asian exports. Export prices have slumped, currencies have dived and yet debts remain, mainly in dollars. And now the Fed is set to hike the cost of borrowing dollars.

So does all this mean we are heading for a new global slump? Well, I have raised the risk that a Fed rate hike could be the trigger for a new slump, just as it was in 1937 when it brought to an end to recovery from 1932 during the Great Depression of the 1930s. Only the preparations and beginning of the world war ended that slump.

The strategists of capital are not stupid. They have tried to estimate the likelihood of a new recession. Goldman Sachs pointed out that the current economic expansion — beginning in July 2009 — was now 76 months old. Using data since 1950, they calculate that the unconditional odds that a six-year-old expansion will avoid recession for another four years—and mature into a 10-year-old expansion—are about 60%. So the odds of recession over the next year are only 10-15%. And mainstream economic indicators for recessions using a range of economic variables suggest little likelihood of a slump in the US.

But this sort of indicator is pretty useless and it is backward looking, so recessions are on you before the data indicate them. And mainstream economics never forecast the Great Recession anyway. Indeed, we know that all the leading international economic agencies, the leading economists and investment gurus were predicting faster growth in 2007-8 as the global financial crash unfolded.

Moreover, in my view, modern capitalist cycles of slump to slump have not been just six years or less, but generally 8-10 years: 1974-5, 1980-2, 1990-2, 2001, 2008-9. If that were to hold again, then the next slump would not be due to start before next year at the earliest. And if the Fed’s rate hikes are to have an impact, they won’t be felt on the cost of debt and investment for at least six months.

It is best to consider the Marxist indicators that I have referred to: profitability and profits and business investment. There has been some debate in Marxist economic circles that profitability is not low or falling and that there is an excess not a dearth of profits in the major economies. I have discussed these arguments that the capitalist world is ‘awash with cash’ in previous posts. All I can add is that cash and profits are the not the same and profits and profitability are not either. I have not measured US profitability for 2015 and final proper data for 2014 is only just becoming available, but 2014 showed a decline, with rate still below the peak of 2007 and the higher peak of 1997.

I have shown before in previous posts that global corporate profit growth has nearly ground to a halt and in the US on some measures, it has gone negative.

The latest earnings results for the top 500 companies in the US confirm that both revenue and profits fell in the most recent quarter.

And as I have shown before, where profits go, business investment is likely to follow, with a lag.

Will the world enter a new recession next year? Probably not. The global economy has just started the up phase, of the three year cycle, which depressed activity from the last quarter of 2014. So, the short run cycle favours increased activity not reduced activity between here and the last quarter of 2017.

We have global primary product prices at multi year lows compared to the high market prices they were pushed up to due to the massive rise in demand brought about by the onset of the new long wave boom in 1999. Those current low prices are a consequence of the large rise in investment in the production of those commodities, which caused the current overproduction. Its likely to be into next year before that oversupply is neutralised, and market prices of those primary products such as oil, stabilised at the price of production.

In the meantime, the current low prices of these primary products mean, as Marx sets out, that the value of large parts of constant capital have been significantly reduced, so a smaller portion of the current output, has to be devoted to replacing “in kind” the consumed constant capital, which necessarily causes both a rise in the rate of profit, and a release of capital, which is available for additional accumulation.

At the same time, because many of these primary products, such as oil, but notably food – global milk prices have collapsed due to the same investment splurge resulting from the increased demand and higher prices induced by the long wave boom – form a significant element in the value of labour-power, these lower prices mean that the global value of labour-power is reduced, so that again, a small proportion of current output has to go to replacing the consumed variable capital, so the rate of surplus value rises.

That rise in the rate of surplus value, increases both the mass and rate of profit directly, and results again in a release of capital available for additional accumulation. So, the conditions exist for a significant rise in investment and higher levels of economic activity. With signs of rising wages across the globe, at the same time that the value of labour-power is falling, this is an indication of the extent to which the demand for labour-power is rising. As marx sets out in Value, Price and Profit, the consequence of this is a shift in the structure of aggregate demand, with an increased requirement for investment in the production of wage goods, as these higher wages cause higher demand for them.

Anyone who watches the TV to see the vast array of new potential commodities being developed with new technology, particularly all of the new commodities in the sphere of personalised healthcare, to monitor and instantly adjust a range of body conditions, such as blood sugar levels, to be able to send information to doctors, and hospitals ahead of any potential life threatening events, to be able to administer personalised gene therapies for cancer and so on, will recognise the huge number of new high value, high profit areas of production that are just waiting for investment.

The rise in US official interest rates in some ways is irrelevant, because as Marx demonstrates it is the market not the state which determines interest rates, on the basis of the demand and supply for capital. That is why in many parts of the globe interest rates have already been rising, and even within individual markets there is a wide variation in interest rates – up to 4000% p.a. for pay day loans in the UK, and 30% for credit card interest for example.

On the other hand, it is important, both because it is an indication of the extent to which the US state has rigged certain financial asset prices in the US itself. To the extent that it signals that the US state is no longer going to be acting as back-stop to those financial asset prices, it will be a positive means of ending the 30 years of speculation within them, which in more recent years has particularly led to the diversion of revenue away from productive accumulation.

With the average rate of interest already above the official interest rate in the US, it is ridiculous to think that any rise in the official interest rate would have any directly deleterious effect on economic activity. By crashing financial markets it would immediately be beneficial, by making that mountain of potential money capital available for use as productive accumulation rather than speculation.

The problem would arise, as marx and Engels showed in relation to the 1847 and 1857 financial crises, if this financial crisis was allowed to impinge upon the real economy, as a result of a credit crunch. But, as Marx and Engels demonstrated in that analysis, there is a huge difference between providing the necessary liquidity to provide a credit crunch, and thereby enable commodities and capital to continue to circulate, and the policy of QE and other forms of liquidity injections used over the last thirty years, to prop up financial asset prices.

It will involve allowing banks and financial institutions to fail, but they could be taken over by their workers once they have become bankrupt, co-op banks and other mutualised financial institutions, may also be able to fill the gap, as they did in much of Europe in 2008, and ultimately the state might have to backstop that function of ensuring that the liquidity has channels into the market.

That would be completely different to the situation over the previous period where the state via QE has pumped trillions of dollars into circulation that went into speculation, to inflate bubbles, and almsot none of it went into the real economy, rather it acted to divert even further potential capital out of the real economy and into such speculation.

Priceless: “The global economy has just started the up phase, of the three year cycle, which depressed activity from the last quarter of 2014.”

More gobbledy-gook from the man who thought the EU was on the road to recovery before the evil-austerians screwed everything up; from the man, who, when copper was 3X the price it now is viewed THAT as a positive sign, as “Dr. Copper” telling us all is well with capitalism and 2009 was fading fast in the rearview mirror.

Now, the collapse in the price of copper augers well for capitalism. The doctor is in, the doctor is out. He’s high, he’s low. He’s up, he’s down. He’s a doctor of convenience.

Remember how the collapse in the price of oil, when that started, was going to be a boom for capitalism? Less cost of the “c” in C? How has that worked out? Good you think? With capital spending buy oil majors plummeting some 20-25 percent? With perhaps 200 projects being put on hold? With 100 million barrels warehoused at sea, on tankers, because land storage facilities are full, and Iraq, Iran, Saudi Arabia, Russia, and the US are still pumping at elevated rates? No, the 100 million isn’t being stored as a contango play, since this isn’t oil “owned” by traders waiting for the price to rise, but by suppliers, who can’t find anyplace to put it.

Oh yeah, 1999 was the end of a long wave downturn and 2000 was the start of an upturn. Sure thing. That’s why annual rates of growth of world trade are half of what they were 1995-2005. That’s why Italy’s GDP is back to the 2000 level. That’s why the IMF, the World Bank, OECD have revised their figures downward for global growth in 2015. That’s why China’s exports and imports have declined monthly for the last year. Get it? That’s all good news.

Takes a real genius to comprehend that global, systemic overproduction really is the beginning of a new long wave upturn.

The prices of primary products are particularly vulnerable to ‘price shocks’ as the price of these commodities can be heavily subsidized and open to speculation. Also politics, conflict and extreme weather affect the price.

The increase in food prices didn’t really start until around 2004, not 1999. The Australian drought of 2005 pushed the price up further, triggering much unrest throughout the world.

The price of copper did rise quite rapidly after 1999, and that was a direct result of increased demand, at a time when copper miners could not, or as I have shown elsewhere, were not prepared to invest to increase supply. They were not prepared to invest until they saw that the higher level of demand and prices was not a flash in the pan, and they could not increase supply quickly from additional investment, because it takes 7 years to get a copper mine up and running and longer for it to reach optimum production levels.

Food prices did not start rising until 2004, because additional food demand is a function of rising living standards, and those rising living standards did not start to have a material affect until the new long wave boom had got underway causing the demand for labour to rise, and more workers to be employed, and gain higher wages. By 2007 that had reached such a level that there were global food shortages, an food riots. But, the massive investment in agricultural, particular in developing industrial farms in Africa, means that although demand has continued to rise, supply has outstripped it.

The demand for oil and copper has also continued to rise, but the price is falling because supply has risen faster.

So, what Boffy’s ultimate Marxist analysis comes down to is…..supply and demand. Copper supply is growing faster than demand.

He might as well be telling us that the 6 fold increase in oil prices between 2002 and 2007 was due to demand growing faster than supply, and the subsequent 60% drop since 2014 because supply is growing faster than demand.

Supply and demand being for the political economists, the ultimate story, a totem really, that covers everything and explains nothing

The issue is, of course, what determines supply and demand? What determines the imbalance, and transforms the disequilibrium of capitalist production from chronic but latent TO chronic but acute? And that issue is profitability.

Just because milk prices have crashed doesn’t mean the value of labour power will take a plunge, a lot more goes in to outfitting a worker.
Also healthcare apps are no basis for a new boom, in essence we have mechanical Boffy saying things are bound to go up because they are due to according to my time table!

I mean why do we have to be subjected to such utter trash from that buffoon Boffy (?) viz:
“Anyone who watches the TV to see the vast array of new potential commodities being developed with new technology, particularly all of the new commodities in the sphere of personalised healthcare, to monitor and instantly adjust a range of body conditions, such as blood sugar levels, to be able to send information to doctors, and hospitals ahead of any potential life threatening events, to be able to administer personalised gene therapies for cancer and so on, will recognise the huge number of new high value, high profit areas of production that are just waiting for investment.”
That appears to be the scientific “method” of Bofferino i.e. watching the TV and reading Wages Price and Profit to find a correlation.
I hope he keeps it up because his gibberish is one of the most entertaining slapstick performances around on the economics blogosphere.
As we know a general drop in prices must augur a new boom….oh sorry we’re actually in one! LOL

Really Bruce? I thought the most entertaining thing in recent years was my demolition of the ill-informed nonsense you and Dobbs came out with in the Weekly Worker a year or so ago, when you demonstrated that you could not even read Marx and quote him accurately, let alone understand the principles and concepts he outlined!

And to rub it in, I exposed your position even further on my blog, where you again showed your lack of understanding in comments where you quoted passages from Ricardo, that Marx was criticising, in support of the argument you were putting, apparently unaware that Marx was attacking those very passages, not quoting them to support them!

Really Bruce? I thought the most entertaining thing in recent years was my demolition of the ill-informed nonsense you and Dobbs came out with in the Weekly Worker a year or so ago, when you demonstrated that you could not even read Marx and quote him accurately, let alone understand the principles and concepts he outlined!

And to rub it in, I exposed your position even further on my blog, where you again showed your lack of understanding in comments where you quoted passages from Ricardo, that Marx was criticising, in support of the argument you were putting, apparently unaware that Marx was attacking those very passages, not quoting them to support them!

The biggest laugh Boffy was your attempt to explain the rate of profit, as elucidated by Marx, as being a theory of a firm’s profit margin and completely misunderstanding that the rate of profit as such is the annual rate for the entire capitalist economy.

As for your “demolition job” on our reply to your Weekly Worker article we weren’t allowed by the editor to come back on your waffle and were directed to continue our spat in the letter’s page.

The Weekly Worker, as most serious economic thinkers would acknowledge, are hostile to the concept or importance of Marx’s LTRPF and broadly ascribe to Hillel Ticktin’s brand of underconsuptionism. Hence why you were allowed another 5,000 words of garbled, unintelligible tripe in response to us while we were blocked in replying further.

Your “contributions” did receive a response from Esteban Maito I believe.

In this article Maito noted:

“To begin with, let me say that Arthur Bough should at least take the trouble to read my articles and not draw conclusions about my position through a simple reading of a blog comment. I have written a paper that estimates – obviously in very rough way – the turnover speed of circulating capital in four countries (on the same methodological base). If Bough reads it, he would avoid falling into the unrealistic assumptions on fixed capital that he makes in his examples. He would also do well to take a look at my data series, which include annual rates of profit and surplus value.”

So while I apparently can’t even read Marx I can understand Maito whereas you appear to base criticism of him on a blog comment. Tut tut.

“The biggest laugh Boffy was your attempt to explain the rate of profit, as elucidated by Marx, as being a theory of a firm’s profit margin and completely misunderstanding that the rate of profit as such is the annual rate for the entire capitalist economy.”

Except that both Marx and Engels distinguish clearly between the rate of profit as the profit margin, and the annual rate of profit, which is based upon the advanced productive-capital for one turnover period, and this applies equally to the case of the capital of an individual firm or for the total social capital.

Moreover, in Theories of Surplus Value, Marx says specifically that when he is referring to the law of the tendency for the rate of profit to fall, he is referring to it in the former sense of the profit margin, and NOT the annual rate of profit.

I notice that you didn’t even use the offer to you to respond in the WW’s letters page, and when you responded on my blog, you quickly retreated with your tail between your legs, just as you did when I argued the point with you and Dobbs on his blog.

Your comments in relation to the WW and LTFRP is odd given the frequency of Michael’s articles there, and of Nick Rogers article in this week’s edition.

I responded to Maito’s article, having read it, carefully and in detail, who has spent some time analysing the rate of turnover of capital. It must be very hard for you to understand, why he has spent so much time in that venture given that you and Dobbs claimed that the rate of turnover of capital was merely a “novelty”!

And Maito also replied to my blog posts on his analysis. I have to say that he did so in the kind of comradely manner you would expect from socialists, and quite at variance from the elitist, troll-like attitude that you and your sock puppets adopt.

Maito commented on my blog,

“Arthur.
Thanks for taking time reading my work.”

He went on to set out his disagreement with the response I had given in a comradely manner, quite at variance to your and Dobbs’ approach.

“{Incidentally, when speaking of the law of the falling rate of profit in the course of the development of capitalist production, we mean by profit, the total sum of surplus-value which is seized in the first place by the industrial capitalist, [irrespective of] how he may have to share this later with the money-lending capitalist (in the form of interest) and the landlord (in the form of rent). Thus here the rate of profit is equal to surplus-value divided by the capital outlay.”

Capital outlay, is, of course, what it says, the capital laid-out during the year, which as Marx and Engels describe in Capital III, is the same as the cost of production k. That is what is laid out for constant capital and variable capital, plus the wear and tear of fixed capital. The surplus value here is equivalent to p, and so this rate of profit used in describing the falling tendency IS the profit margin.

The annual rate of profit by contrast is based upon the advanced capital for one turnover period, and the whole point, as marx and Engels describe, is that this capital is advanced several times during the year, so that the annual rate of profit will always be higher than the profit margin, and in fact, the two will tend to move in opposite direction, because of rising social productivity, the very thing required for the the organic composition of capital to rise, and for the tendency for the rate of profit to fall!

“{Incidentally, when speaking of the law of the falling rate of profit in the course of the development of capitalist production, we mean by profit, the total sum of surplus-value which is seized in the first place by the industrial capitalist, [irrespective of] how he may have to share this later with the money-lending capitalist (in the form of interest) and the landlord (in the form of rent). Thus here the rate of profit is equal to surplus-value divided by the capital outlay.”

Except THAT ^ is not: “Moreover, in Theories of Surplus Value, Marx says specifically that when he is referring to the law of the tendency for the rate of profit to fall, he is referring to it in the former sense of the profit margin, and NOT the annual rate of profit.”

So where does Marx say that the tendency of the rate of profit to fall is only in the sense of profit margin, and not in the annual rate of profit?

Marx does not say what Boffy says he says. He never speaks of the law of the tendency of the rate of profit to decline as applying solely “profit margin” and not precisely, specifically, and directly to the rates of profit for a) different capitals of different composition b) the establishment or normalization of a general rate of profit c) the tendency of that rate to decline as a whole as the proportion of living labor is expelled from production.

In discussing the “law itself” in Volume 3, is direct in his explanation of the law as the law of capitalist production as a whole, not some notion of profit margins. see pages 332-333-334, 335,336 vol 3 (Penguin edition).

Marx says, first (pages 332-333): “Since the development of productivity and the higher composition of capital corresponding to it leads to an ever greater amount of means of production being set in motion by an every smaller amount of labour, each aliquot part of the total product, each individual commodity or each specific group of commodities absorbs less living labour and also contain less objectified labour both in terms of the depreciation of the fixed capital applied and in terms of the raw and ancillary materials that are consumed….The price of the individual commodity therefore falls. The profit contained in the individual commodity may still increase for all that, if the the rate of absolute or relative surplus-value rises. It contains less newly added labour, but the unpaid portion of this labour grows in proportion to the paid pat. YET THIS IS ONLY TRUE WITHIN CERTAIN DEFINITE LIMITS [emphasis added, obviously]. With the enormous decrease, in the course of the advance of production, of the absolute amount of living labour newly added to the individual commodity, the unpaid labour it contains also undergoes an absolute decline , no matter how much it may have grown in relation to the paid portion…”

In his other economic manuscripts, and in Volume 3 also, Marx works out how this same process LENGTHENS, not reduces, the turnover time of the total capital thrown into production, focusing his analysis on the impact and import of increasing fixed capital on the production process

Then Marx says (page 333): ” With exception of ISOLATED CASES [emph. added] (e.g. when the productivity of labour cheapens all the elements of both constant and variable capital to the same extent), the rate of profit will fall despite the higher surplus value.”

THEN Marx says (334) “The rate of profit is calculated on the total capital applied, but for a specific period of tome, in practice a year. The proportion between the surplus-value or profit made and realized in a year and the total capital, calculated as a percentage is the the rate of profit. And so this is not necessarily identical with a rate of profit in which it is not the year but rather the turnover period of the capital in question that is taken as the basis of calculation….

To put it another way, the profit made in the course of a year is simply the sum of the profits on the commodities produce and sold in the course of that year.”

THEN MARX says (335) ” We see here once again how important it is in capitalist production not to view the individual commodity or the commodity product of some particular period of time in isolation, as a simple commodity; it must rather viewed as the product of the capital advanced, and in relation to the total capital that produces this commodity.

Even though the RATE of profit cannot just be calculated by measuring the mass of surplus-value produced and realized against the portion of capital consumed which reappears in the commodity, BUT ONE MUST RATHER MEASURE IT AGAINST THIS PORTION PLUS [emph added] the portion of capital which is admittedly not consumed, but is still applied in production and continues to serve there, the MASS of profit can nevertheless only be equal to the mass of profit of or surplus value actually contained in the commodities and destined to be realized by their sale.

Boffy has essentially tried to get everyone to sign on to chasing the wild goose, or is it a unicorn?, of increasing turnover of capital as capital accumulates as offsetting the rate of profit to decline, when it fact the increasing accumulation IS the embodiment, the product and the producer, the determinate and the determined, of the law of the tendency for the rate of profit to decline.

In Chapter 15 Marx goes into the development, and impacts, of the of law’s internal contradictions and says (p 349-350)”…the fall in the profit rate again accelerates the concentration of capital, and its centralization, by dispossessing the smaller capitalists and expropriating the final residue of direct producers who still have something left to expropriate. In this way there is an acceleration of accumulation as far as its mass is concerned, even though the rate of this accumulation falls together with the rate of profit.

…in view of the fact that the rate at which capital is valorized, i.e the rate of profit, is the spur to capitalist production (in the same way as the valorization of capital is ITS SOLE PURPOSE [emph added]), a fall in the is rate slows down the formation of new independent capitals and thus appears as a threat to the development of the capitalist production process; it promotes overproduction, speculation and crises…The importing thing in their [political economists] horror at the falling rate of profit is the feeling that the capitalist mode of production comes up against a barrier to the development of the productive forces which has nothing to do with the production of wealth as such; but this characteristic barrier in fact testifies to the restrictiveness and the solely historical and transitory character of the capitalist mode of production; it bears witness that this is not an absolute mode of production for the production of wealth, but actually comes into conflict at a certain stage with the latter’s further development.”

Well, not to belabor the point, but Boffy has a singular, idiosyncratic view on the law of the tendency of the rate of profit to decline:– namely it appears that, on the one hand, he doesn’t think that the rate of profit CAN decline, and where and when it has declined, it doesn’t matter anyway.

That’s HIS argument, not Marx’s who quite explicitly recognized this law as the most important law of capitalist production.

And just to doubly emphasize Marx’s point about the rate of profit being calculated over a uniform period of time: His argument in volume 3 is essentially that the number of turnovers is subsumed by the time period. The total profit realized in the designated time period in relation to the total capital advanced (meaning that consumed, and that not totally consumed in the production process) is the basis for examining the law, and the workings of the law.

“Time is everything, man is nothing. At most, he is time’s carcass” wrote Marx in The Poverty of Philosophy (I think).

Boffy you’re at it again. You read Maito’s work in detail AFTER you wrote the article for the WW’er!

Then you quote your blog where Maito stated:

“Arthur.

Thanks for taking time reading my work.”

Indeed he did but then added “However, I mostly disagree with you.”

As for when I responded on your blog that I quickly “retreated” with my tail between your legs I did no such thing. I didn’t bother responding further because you’re a dissembler of the worst sort and hardly worth the energy.

You had stated that in Chapter 17 of TSV On Crisis that Marx never mentioned the falling rate of profit “not once”!

When I pointed out the fairly lengthy section from the chapter where Marx deals with the falling rate of profit in reference to Ricardo where he does detailed calculations to show how the rate of profit falls he then goes on to state:

“This, as Ricardo sees it, is the bourgeois “Twilight of the Gods”—the Day of Judgement.”

Your response was the usual very lengthy garbled attempt to avoid the obvious facts.

Lest readers think that Marx believed Ricardo to be off beam here then why does he reiterate in Capital Vol III Chapter 15 on Exposition of the Internal Contradictions of the Law:

“What worries Ricardo is the fact that the rate of profit, the stimulating principle of capitalist production, the fundamental premise and driving force of accumulation, should be endangered by the development of production itself. And here the quantitative proportion means everything. There is, indeed, something deeper behind it, of which he is only vaguely aware. It comes to the surface here in a purely economic way — i.e., from the bourgeois point of view, within the limitations of capitalist understanding, from the standpoint of capitalist production itself — that it has its barrier, that it is relative, that it is not an absolute, but only a historical mode of production corresponding to a definite limited epoch in the development of the material requirements of production.”

I don’t retreat from a fight with my tail between my legs comrade Boffy and certainly not from the likes of
you.

“Boffy you’re at it again. You read Maito’s work in detail AFTER you wrote the article for the WW’er!”

Because, the WW article was a response to the nonsense that you and Dobbs had written, with all of the obvious mistakes about Marx not having written Chapter 16 of Volume II and so on. It was not a reply to Maito. When I wrote a response to Maito, it was on the basis of an actual detailed reading of his original work!

You then go on,

“Indeed he did but then added “However, I mostly disagree with you.”

Quite right, which is why I added, but you have completely failed to mention,

“He went on to set out his disagreement with the response I had given in a comradely manner, quite at variance to your and Dobbs’ approach.”!!!

“As for when I responded on your blog that I quickly “retreated” with my tail between your legs I did no such thing. I didn’t bother responding further because you’re a dissembler of the worst sort and hardly worth the energy.”

Really? What I had written, and have written many times is that in the section of Chapter 17 of TSV, in the 50 pages of that section, Marx does not refer to the Law of Falling Profits once, as being a cause of crisis. And he doesn’t! In fact, as I pointed out, in the one reference to falling profits in that section, he criticises Adam Smith and people like you. He writes,

“A distinction must he made here. When Adam Smith explains the fall in the rate of profit from an over-abundance of capital, an accumulation of capital, he is speaking of a permanent effect and this is wrong. As against this, the transitory over-abundance of capital, over-production and crises are something different. Permanent crises do not exist.”

You referred to a statement by Marx, in Chapter 17, its true, but not in the section on the Causes of Crises!, and not in those 50 pages I had referred to! So, who is it that is dissembling here?

Moreover, as I set out, if you actually read what Marx says in the section you refer to, Marx is actually criticising Ricardo’s statement that you want to put forward as a support of your own position!

Furthermore, as I set out in my response, if you actually read what marx said there, rather than simply looking out the nearest at hand quote, which you thought might support your argument, you would actually see that what Marx is talking about in that section is not the Law of the tendency for the Rate of Profit to Fall, which arises from a rise in the organic composition of capital, due to rising social productivity, but the opposite!!!

He is talking, as he does in Chapter 6 of Capital Volume III, about rising market prices, of inputs caused either by a rise in demand that is not met by rising supply, in the particular instance cotton, or else caused by a FALL not a rise in social productivity, so that a greater proportion of current production, a greater quantity of available social labour-time has to go to replace the commodities that comprise the constant capital that has been consumed in current production, and so social reproduction, and the mass of surplus value contracts!

By contrast, the LTPRF is founded upon rising social productivity, and a rising mass of capital and surplus value. It is why in Capital III, he criticises the argument of Ricardo and others that catastrophists like you want to hang their hat on, and he says,

“But if the same causes which make the rate of profit fall, entail the accumulation, i.e., the formation, of additional capital, and if each additional capital employs additional labour and produces additional surplus-value; if, on the other hand, the mere fall in the rate of profit implies that the constant capital, and with it the total old capital, have increased, then this process ceases to be mysterious. We shall see later [K. Marx, Theorien über den Mehrwert. K. Marx/F. Engels, Werke, Band 26, Teil 2,. S. 435-66, 541- 43. — Ed] to what deliberate falsifications some people resort in their calculations to spirit away the possibility of an increase in the mass of profit simultaneous with a decrease in the rate of profit.”

The very opposite of the position you want to attribute to him! He could have been speaking about you here, when he says,

“We shall see later [K. Marx, Theorien über den Mehrwert. K. Marx/F. Engels, Werke, Band 26, Teil 2,. S. 435-66, 541- 43. — Ed] to what deliberate falsifications some people resort in their calculations to spirit away the possibility of an increase in the mass of profit simultaneous with a decrease in the rate of profit.”

“I don’t retreat from a fight with my tail between my legs comrade Boffy and certainly not from the likes of you.”

Except you did, and you have, in the WW, on Dobbs’s blog, and in your comments to my blog. It seems to me from all of your comments that you are an elitist, an authoritarian who seeks to close down debate, and thinks only those in their elite should have a say, and only absolute adherence to “the line” will suffice (hence your attack on the Weekly Worker) and a bully, who like all bullies does not like it when someone stands up to them.

This crap is coming from Boffy who likes to declare as trolls and sock puppets anyone who disagrees with him. Boffy is a vile hypocrite and a slanderer, just recently he attacked anti-capitalists by saying ISIS is anti-capitalist, which is crap btw.

I hope I haven’t overstepped the mark but I can’t help calling Boffy “Bofferino”. One could hardly describe this as name calling. However I don’t think any of us who are sick fed up with Boffy’s misrepresentation of Marx’s ideas have ever willfully misrepresented him Boffy. It is difficult to argue rationally with somebody who is totally irrational. I’ll end my comments here.